Migrant Benefit Study

by Christian Dustmann, Professor of Economics at University College London and Director, Centre for Research and Analysis of Migration,
and Tommaso Frattini, Assistant Professor of Economics at University of Milan and Research Fellow, Centre for Research and Analysis of Migration.

1. On Friday January 20^th The Telegraph published an article by Chris Grayling (Minister for Employment) and Damian Green (Immigration Minister) entitled "Labour didn’t care who landed in Britain - The last government had lax immigration and a chaotic way of controlling foreign benefit claimants."
   
2. That piece seems to suggest that foreign born nationals are more likely to claim benefits, and are possibly not entitled to do so, without providing any information that would be needed for appropriate assessment. A key line in that article states that "As a result we now know that there are 371,000 people who were foreign nationals when they entered Britain who are claiming benefits."
   
3. That number is actually very good news: immigrants are far less likely to claim benefits than natives. Of course, this cannot be deduced from the piece in the Telegraph, as we are not told what is the number of foreign born individuals who live today in the UK, neither are we told what is the total number of benefit claimants. Inspection of the British Labour Force Survey (BLFS) shows that around 5.6 million individuals living in the UK in 2010 (in the age range 16-65, which is the age range within which individuals are most likely to be in the workforce, and to claim such benefits) are born in another country, with the overall population in the UK in that age range being almost 40 million. Thus, immigrants constitute 14 percent of the total working age population. According to DWP, there are 5.7 million benefit claimants as of May 2011. Thus, the share of the 371,000 individuals who were foreign nationals when they entered Britain among benefit claimants is only 6.5 percent. Therefore, assuming that those who entered as foreign nationals are also foreign born, it follows that they are less than half as likely to claim benefits as native born individuals.
   
4. If we really want to assess whether immigration imposes a burden for the UK public finances, we need to consider both immigrants’ benefits receipts and the tax payments immigrants make. That of course requires a far more involved analysis. Our previous research on the fiscal consequences of immigration from the eight Central and Eastern European countries that joined the European Union in May 2004 (so called A8 countries) has done just that (Dustmann, Frattini and Halls 2010). It investigates the effect immigration from these countries had on the welfare system, by computing benefit receipts of immigrants who came to the UK between 2004 and the first quarter of 2009, using information from the BLFS and data from several government departments on the budget and on tax- and benefit payments, and covering the fiscal years 2004/05 to 2008/09.
   
5. The research shows that A8 immigrants over that period were less likely to be claiming welfare benefits or to be living in social housing than individuals born in the UK. Further, they made a positive contribution to the UK fiscal system, paying more in taxes than they receive in direct and indirect public transfers (such as benefits, NHS healthcare and education). For example, in 2008/09, A8 immigrants represented 0.91% of the total UK population, but contributed 0.96% of total tax receipts and accounted for only 0.6% of total expenditures. In particular:
   
   • The study also shows that A8 immigrants who arrived after EU enlargement in 2004, and who have at least one year of residence – and are therefore legally eligible to claim benefits – are over 50% less likely than natives to receive state benefits or tax credits, and to live in social housing. Comparing the net fiscal contribution of A8 immigrants with that of individuals born in the UK, in each fiscal year since enlargement in 2004, A8 immigrants made a positive contribution to public finances.
     
   • In every year since 2004, A8 immigrants made a positive and substantial net contribution to public finances. For instance, in the fiscal year 2008/09, A8 immigrants paid 37% more in direct or indirect taxes than was spent on public goods and services which they received. This was even more remarkable because the UK was running a budget deficit over those years, meaning that overall, individuals living in the UK made a negative net contribution to public finances.
     
   • The study also demonstrates that on average, A8 immigrants have a better educational background than UK-born workers, but receive lower wages - especially in the period immediately after arriving in the UK. Despite this, A8 immigrants are net contributors to the public finances. The main reason for this is that they have a higher rate of labour force participation (increasing the number of fiscal contributors), and make less use of benefits and public services.
     
6. We have subsequently extended our research to the entire UK immigrant population. First findings show that for those cohorts who arrived after 1995, the ratio of their share of total tax payments to their share in the total population is always larger than the share of public expenditure they receive, relative to their share in the total population Thus, all these immigrant cohorts contributed more than the native born to public finances.
   
7. As researchers in the field of immigration, we are acutely aware of the limitations in data about the foreign population in the UK, and we welcome any effort to enhance the current knowledge base. The government’s effort to link information on immigrant status to administrative data on benefits receipt is therefore a very welcome addition. However, it is equally important that any research conducted is carefully and clearly documented, and that any research results are presented in an appropriate manner that avoids misrepresentation in the media. This is particularly important in an area as sensitive as immigration. Research on migration, in particular when publicised by government sources, needs to be appropriately reported and benchmarked if it is to be of any use in enhancing our knowledge of such an important and complex phenomenon.
   

References
"Labour didn’t care who landed in Britain" by Chris Grayling and Damian Green: http://www.telegraph.co.uk/news/uknews/immigration/9025260/Labour-didnt-care-who-landed-in-Britain.html
Dustmann, C., Frattini, T. and C. Halls (2010), "Assessing the Fiscal Costs and Benefits of A8 Migration to the UK", Fiscal Studies, vol. 31, no. 1, pp. 1–41. See also CREAM DP 18/09 http://www.cream-migration.org/publ_uploads/CDP_18_09.pdf
Other comments:
Jonathan Portes commented on his blog: http://notthetreasuryview.blogspot.com/2012/01/migrants-benefits-and-public-services.html
The BBC reported: http://www.bbc.co.uk/news/uk-16643677; http://www.bbc.co.uk/news/uk-16659847

Some thoughts on immigration and unemployment

by Ian Preston
Centre for Research and Analysis of Migration, Dept of Economics, University College London

1. Two reports published on the same day last week contain evidence on the impact of recent immigration on employment of the UK-born. One of these (NIESR 2012) claims to find no evidence of an effect; the other (MAC 2012) suggests that certain sorts of immigrants in certain periods may have depressed employment. The difference in conclusions makes it difficult to identify exactly what economic evidence really shows. This note offers some comments on what can be learnt from these two reports.
   
   The reports usefully complement each other. The methods are broadly similar. Both compare changes in employment rates and levels of immigration across spatially defined local labour markets, correcting as well as possible for other effects. However they use different data sources over different periods and at different levels of spatial aggregation so it is not surprising that results differ and it is informative to compare the ways in which they do.
   

   One report (MAC 2012) uses a large labour survey that has been running for many years and the authors are therefore able to assess things over a longer period. However because the survey covers fewer workers they need to aggregate up to larger spatial units. The measure of immigration, based on change in numbers of foreign-born workers, keeps track of immigrants leaving as well as entering regions.

   The other report (NIESR 2012) uses recent administrative data of much wider coverage and these authors are therefore able to focus on smaller spatial units but only over a shorter period. The measure of immigration, based on NI registrations, is focused on employment-related immigration but has the weakness that it tracks only immigrant arrivals. Since flows of immigrants between regions and out of the country are not small relative to inflows this seems a significant countervailing drawback.

2. Some media coverage has taken the line that it is only common sense to think immigration must lower employment prospects for those already in the country and all that has happened is that one study has finally uncovered what should have been obvious all the time. Of course, if it were so obvious then it would hardly have been necessary for so much research effort to have been expended on the question. But it is not obvious.
   
   When, say, an immigrant secures a vacancy for which a UK-born applicant was considered, it is often visible and understandably motivates grievance, even though it may not be obvious that the UK-born applicant would have been offered the job otherwise (and even though leaving the vacancy unfilled might have had consequences for employment of others). When spending by the employed immigrant adds to local demand, that, by contrast, is far less visible but no less important. Mere movement of workers from one country to another does not in itself change the amount of demand for goods in the world. The demand for internationally tradable goods produced in the UK can come from anywhere in the world and is not obviously tied to how many people are in any particular country and as migrants move into the country they bring demand for nontraded goods and services with them. It is perfectly reasonable – indeed arguably common-sense – to start from an expectation that immigration should bring just enough demand into the country to enable immigrants to be employed without any adverse effect on the UK-born.
   
   This expectation is only a starting point - a more sophisticated view will recognise the potential for immigration to affect prices and wages in ways that may feed back onto employment in one way or another. Processes of equilibration take time and there may be short term employment effects even if these disappear in the long run. In the absence of any clear presumption about which way the final effect should go, the matter calls out for empirical research. We should not be surprised if that research fails ultimately to find evidence of any substantial impact.
   
3. There have been studies in several countries and the preponderance of evidence is strongly suggestive that employment effects are small if they exist at all. Some of that research, cited in both reports, was done by researchers including myself at CReAM (CReAM 2005); that work failed to find convincing evidence for employment effects in the UK but that, as with much work in the area, was arguably as much because of the difficulty of making estimates precise as it was because they were clearly small. Other people have found similarly scant evidence. In this context, new research such as these two reports is a welcome addition.
   
4. The MAC paper looks for effects from immigration of several different sorts in several different periods. Many of these estimated effects are unexciting; typically at most one type of immigration in one subperiod is found to be individually statistically significant. Focussing on individual statistical significance can be misleading when there is no reason to think that the particular type of immigration concerned has drawn attention for any reason other than its having the strongest attached statistic. A better question to ask would arguably have been whether or not one can statistically reject the hypothesis that all effects are jointly zero. It is not at all clear that such a test would support the conclusion that immigration harms employment.
   
5. The main results in the NIESR paper are based upon much smaller spatial units. This gives more data points, enhancing statistical precision, but also makes it less easy to be confident that the boundaries of these spatial units reliably contain the labour market effects studied. At this level of spatial aggregation, no evidence of employment effects is found.
   
   The paper also, however, reports results estimated at regional level, the same as in the MAC report. The NIESR authors do not concentrate on these, because they prefer the results at the lower level of spatial aggregation on methodological grounds, but the result do make a striking contrast to those in the MAC report since they both appear statistically not badly determined and actually point to immigration being associated with lower unemployment and being so more strongly in periods of downturn. This contrast diametrically with the MAC conclusions and does not encourage confidence in the robustness of conclusions that can be reached with regional level data.
   
6. The MAC report itself is extremely open about the fragility of results to several robustness checks such as removal of outliers. This lack of solidity does not necessarily mean that they are not picking up real effects but does call for caution before using conclusions as a guide to policy-making. Furthermore, insofar as there may be employment effects of immigration, some of these robustness checks hint they may be short term and therefore compatible with being transitional rather than part of an effect on long run equilibrium in the economy.
   
7. Recent work on the closely related question of how immigration affects wages in the UK (CReAM 2012) shows that weak effects on the average can be compatible with different effects along the distribution of skills. The NIESR report points to investigation of the possibility of differential effects on employment prospects of high and low skilled UK born workers as a priority for future work. This seems a sensible judgement.
   
8. The body of the MAC report is typically careful not to claim causality, preferring to refer to "associations" (even though talk of "displacement" is suggestive of a causal impact). What has been found is that a particular subclass of immigration has tended in part of the data to be higher in regions and periods with rising unemployment than in other regions. This doesn’t mean that it caused the change in employment. Predictably, much media coverage has been less reticent.
   
   It is impossible to interpret these associations without thinking about the processes driving immigration. Immigrant location is not random. There is a lot of evidence that immigrants tend to go to areas where immigrants of similar types already live. This is easily understandable as there may be family connections and associated employment networks in established communities of similar origin. This effect is likely to be weaker among recent EU immigrants who come from populations with less history of immigration to the country.
   
   Immigration is at the same time responsive to economics and this is what raises problems with causal interpretations. Employment booms may draw immigration into an area and this will tend to mask any negative employment effect. Temporarily high wages may also draw in immigration and if that inhibits hiring then this will tend to inflate the appearance of negative employment effects. The problems which this raises are conceptually very difficult to overcome. One response is to see whether similar association is also there between employment changes and that part of immigration flows which can be predicted from plausibly noneconomic drivers, like prior concentrations of immigrants in an area. Both NIESR and MAC check this. While the NIESR conclusions are reportedly robust, the precision of the negative employment effects estimated by MAC tends to deteriorate sharply.
   
9. Viewing the totality of new evidence, it is difficult to see a persuasively robust empirical case for long run harmful effects of immigration on employment of the UK-born.
   

References
NIESR 2012: “Examining the relationship between immigration and unemployment using National Insurance Number registration data”, Paolo Lucchino, Chiara Rosazza-Bondibene and Jonathan Portes, National Institute of Economic and Social Research, 2012
MAC 2012: "Analysis of the Impacts of Migration", Migration Advisory Committee, 2012
CReAM 2005: “The impact of immigration on the UK labour market”, Christian Dustmann, Francesca Fabbri and Ian Preston, Economic Journal, 115, pp F342-F358, 2005
CReAM 2012: "The effect of immigration along the distribution of wages", Christian Dustmann, Tommaso Frattini and Ian Preston, Review of Economic Studies, forthcoming, 2012